In This Article:
Life for Snap (NYSE: SNAP) hasn't been easy since it went public in early 2017, as it seems one debacle after another weighed on its performance. As the vanishing-message app turned camera company (and now a streaming video publisher) heads into its third-quarter earnings report on Oct. 25, the big question on everyone's mind is whether Snap can reverse last quarter's decline in the number of users.
Although Snap beat earnings expectations last quarter, the news that it lost 3 million subscribers in the period, a 2% drop and the first time it ever saw a decline, rattled investors. So halting that slide, or better yet, getting back to growth, is the key achievement many are looking for. But it probably won't happen.
An inevitable outcome
Growth in daily active users of Snapchat has been slowing for years. No one expected Snap to maintain the torrid, triple-digit rates it posted early on -- especially after attaining a critical mass of users that number in the hundreds of millions -- so slowing growth was not a surprise.
Data source: Snap quarterly SEC filings.
Competition has been heating up and Snap now particularly faces a challenge from Facebook's (NASDAQ: FB) Instagram, which often co-opts many of the best features of Snapchat and ends up doing them better. That Instagram continues to grow while Snap contracts is worrisome.
The main reason for concern is that Snap's money may dry up as a result. Snap relies on advertising for its revenue and if engagement doesn't expand, advertisers will either balk at paying even the discounted rates Snap is charging or they'll leave the platform altogether.
Snap users are also spending less time on the platform, and there is plenty of anecdotal evidence advertisers are less than pleased, though Snap has made numerous changes to the platform to try to keep users engaged. The ability to buy their own ad space through programmatic channels, which now accounts for 75% of ad revenue, has helped ease advertiser concerns some, and Snap continues to develop new ways for it and advertisers to engage its community.
Change for the sake of change
Most recently, it rolled out new video programming designed exclusively for Snapchat and even in some instances financially backed by the company. Snap Originals is a series of episodic programs aimed at teens that run for about 5 minutes and feature two or three unskippable ads. How they'll be received remains to be seen, but it shows Snap is striving to innovate.
Yet it also risks confusing people about what they should expect from Snap. As noted earlier, Snap was originally a vanishing-message social media platform until it decided it no longer was and you should think of it instead as a camera company.